WEBINAR SUMMARY

Reimagining Procurement
with a Strategic Lens
Featuring Caperton Flood

DECEMBER 16, 2019

SPONSORED BY
 WEBINAR SUMMARY

Reimagining Procurement
with a Strategic Lens
PRESENTER:
Caperton Flood, Partner, Global Procurement Practice Lead, Bain & Company

MODERATOR:
Julie Devoll, Editor of Special Projects and Webinars, Harvard Business Review

Overview
The “golden decade” of procurement has reached its end; organizations that were able to help their
companies unlock value during that time now find they are stuck, unable to create additional value
for the business.

Some procurement organizations, recognizing that the environment has changed, are refocusing
their efforts to take more of a strategic approach to how they create value. This strategic shift goes
beyond just a smart buyer approach that focuses on negotiating better prices; it includes value chain
management, better spending techniques that emphasize controlling demand, reducing complexity,
improving processes, value engineering, and optimizing the supply chain. Reimagining procurement
also prioritizes digital strategies based on identifying key use cases.

Context
Caperton Flood of Bain & Company discussed challenges procurement organizations are facing, as
well as approaches savvy teams are taking to overcome and respond to these challenges.

Key Takeaways
Procurement’s “golden decade” has ended as organizations face new challenges.
Over the last decade, procurement organizations around the globe drove significant price reductions
and high ROI. The strong deflationary environment and recession-led focus on “buy better” strategies
created a unique “golden decade” for procurement. However, procurement organizations face a very
different world today and must contend with new challenges.

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HBR WEBINAR REIMAGINING PROCUREMENT WITH A STRATEGIC LENS

PROCUREMENT TRENDS AND CHALLENGES

Shift from a deflationary to an inflationary environment: a 5% shift in underlying inflation is
dramatically changing what procurement can do. Traditional levers aren’t leading to savings; at best, they
enable the business to break even or potentially offset some costs.

Increasing supplier sophistication and consolidation: in many markets, consolidation has resulted in
two main suppliers. This gives the suppliers higher margins and ROI than their customers.

Increased speed of change: businesses need to take a fresh look at a category every 6 to 12 months.

Talent limitations are high: teams need the right set of digital, analytic, and strategic capabilities.

Changes in tariffs are disrupting global supply chains.

Digital programs are beginning to bog down due to multiple challenges; internal stakeholders have
not bought into the tools and the businesses are unable to realize full value of these tools.

Executive skepticism exists due to the inability to track savings to the bottom line.

“We’re being asked what is the next step of performance that’s going to
unlock cost, increase innovation, manage risk, and help sustainability.
At the same time, we’re struggling to hold down the fort.”
—Caperton
— Flood

Organizations are focusing on strategy to unlock additional value in procurement.

Most procurement organizations are relatively immature and stuck in the early stages of the
procurement maturity curve. Strategic procurement planning helps organizations move up the curve
and unlock the next tranche of value.

FIGURE 1: PROCUREMENT MATURITY CURVE

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HBR WEBINAR REIMAGINING PROCUREMENT WITH A STRATEGIC LENS

STAGES IN THE PROCUREMENT MATURITY CURVE

1. Smart buyers: Tactical buying that targets uninterrupted operations; fairly reactive
2. System cost optimizer: Optimized sourcing with proactive application of TCO, sourcing levers, and
demand management
3. Virtual value-chain integrator: Strategic procurement with matured category management embedded
across functions
4. Next-generation procurement: Procurement provides a strategic competitive advantage with a revenue
uptick

Next-generation procurement organizations (Figure 2) begin with strategies around saving money,
keeping those savings, and sustaining the business. They use data, advanced analytics, and digital to
underpin, enable, and accelerate strategic procurement planning.

FIGURE 2: NEXT-GENERATION PROCUREMENT ORGANIZATIONS BEGIN WITH STRATEGY

Those procurement organizations that are redefining excellence are following several
common approaches.
Bain & Company is seeing nine common approaches that procurement organizations are taking to
redefine excellence.

CATEGORY OF APPROACH COMMON APPROACHES TO REDEFINING EXCELLENCE

Strategic procurement 1. Value chain participation and profit pool management
planning

Buy Better + Spend Better® 2. Attacking “Spend Better” in conjunction with operations, engineering, and HSE
3. Full adoption of Agile category management
4. Scaling of most sophisticated tools

Closed loop savings capture 5. Closed loop and/or zero-based budgeting (ZBB)

Organization and capabilities 6. Procurement organization aligned to corporate organization with

next-generation capabilities

Data, advanced analytics, 7. Data as a competitive weapon

and digital
8. Advanced analytics for visibility and scaling analysis
9. Clear digital roadmap with sequenced, test-and-learn waves

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HBR WEBINAR REIMAGINING PROCUREMENT WITH A STRATEGIC LENS

Value chain management is the next evolution of procurement strategy.

Focusing on several of the common approaches to redefining excellence, Flood discussed the benefits
of value chain participation and management in the procurement strategy. Value chain management
reimagines the role of procurement by shifting from focusing on effective sourcing and risk
management to helping the business determine where it should play in the value chain. However,
few procurement teams are prepared and enabled for value chain management today, as they are
lacking in one or more of the following:

• The right level of ambition among senior leaders for the role that procurement can play.

• Strategic and analytic tools to build proprietary market forecasts and deep category strategies, and
assess total cost of ownership and risk.

• Financial tools to build robust business cases.

• Cross-functional ability to engage and influence senior cross-functional stakeholders.

• Implementation and project management skills (including agile) to ensure realization of complex
strategies.

• Long-term mandate and focus, as opposed to quarter or in-year focus.

Buy Better + Spend Better® techniques create value through savings.

Many organizations are already focusing on “Buy Better,” a supply-led process to create improved
value by negotiating to get the best prices. Buy Better typically drives 40% of the value.

The next evolution is to incorporate “Spend Better,” an operations-led process that drives 60% of
the total value. Spending better goes far beyond just getting the best price and allocating volume. It
is a function of controlling demand, enforcing compliance, reducing complexity, performing value
engineering, improving processes and collaboration, and optimizing value-add in the supply chain.

FIGURE 3: BUY BETTER VS. SPEND BETTER

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HBR WEBINAR REIMAGINING PROCUREMENT WITH A STRATEGIC LENS

“Spend Better” enables procurement to show stakeholders in the business that the procurement
team is a strategic partner, not just a team focused on negotiating the best prices. This is a two-step
process:

1. Show that procurement can deliver on the basics by having good processes in place, delivering
cost savings and value over time, and engaging well with stakeholders.

2. Pilot two or three strategic opportunities where procurement works collaboratively with
stakeholders to unlock greater value.

“Choose a couple of opportunities, double down on them, and

make sure they’re successful. Not only will that be a win you can
talk about internally, but you’ve built internal champions.”
—Caperton
— Flood

Leading companies use a strategy/value back approach to develop digital plans.

The current digital landscape is massively complex and fragmented, and it’s often hard for
organizations to know where to begin when implementing technology solutions that help the
business. Rather than start from the multitudes of procurement technology solutions available today,
leading companies are grounding their digital plans in strategy to decide which tools are most likely
to provide the business with real value.

The strategy/value back approach starts with a vision of where procurement wants to be in the
next three to five years to support the business’s needs, and then walks backwards into the most
appropriate technology solutions. By walking through the value chain, the business identifies which
steps need to be addressed, and ultimately, which tools and technology are needed to help improve
those steps.

Beyond identifying use cases, procurement teams need to identify the right level of granularity
to prioritize these use cases (Figure 4). This task begins with the procurement value chain and
then looks across solution endpoints to group use cases together. The result is building a larger,
cohesive use case, which includes interdependencies among discrete components of the value
chain. Understanding the complete end-to-end use case helps identify technology solutions that can
address the big-picture need.

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HBR WEBINAR REIMAGINING PROCUREMENT WITH A STRATEGIC LENS

FIGURE 4: PRIORITIZE USE CASES ACROSS ELEMENTS OF SOLUTION “END POINTS” (GROUPS OF USE CASES)

Similarly, digital roadmaps that work backwards from big-picture concepts allow the organization to
implement solutions that ensure tangible and discrete progress (Figure 5). In the digital roadmap below,
the vision statements—such as “simple, user-friendly, automated sourcing tools”—are identified on the
right side. Working backwards to today, the roadmap shows the tangible, discrete steps needed to drive
value along the way to the vision. This helps the business break digital projects into waves and allows
the business to revise and course correct as it needs and as technologies change.

FIGURE 5: SUCCESSFUL DIGITAL ROADMAPS ENSURE TANGIBLE AND DISCRETE PROGRESS

Identifying the right use cases, vision, and technology also helps ensure that the data collected can be
used with advanced analytics tools, bringing even more insight and cost benefit to the business.

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HBR WEBINAR REIMAGINING PROCUREMENT WITH A STRATEGIC LENS

Key concepts for procurement organizations to consider in today’s challenging

market.
Over the next five years, in more challenging market conditions, successful procurement
organizations will need to move up the maturity curve to extract more value for their business.
Organizations can extract more value by:

• Underpinning their value chain with leading-edge techniques to attack “Spend Better” levers.

• Deploying agile teams that develop close partnerships with manufacturing, engineering, and other
groups across the business.

• Leveraging advanced analytics capabilities that scale across categories and are supported by the
right fit-for-purpose tools and technology.

Caperton Flood is a partner based in Bain & Company’s New York office. He leads the firm’s global Procurement practice
and is an expert in the worldwide Energy & Natural Resources, Advanced Manufacturing & Services and Performance
Improvement practices.
Across these spheres, Caperton’s sector specializations include chemicals, mining, oil & gas, aerospace & defense (A&D) and
industrial equipment. However, he has advised clients across a robust range of sectors, providing cross-industry insights
and best practices. He also supports large-scale Zero-based Redesign (ZBR) and Zero-based Budgeting (ZBB) efforts.
Caperton holds an MBA from Stanford University and a bachelor’s degree from Vanderbilt University.

Julie Devoll is Editor for Harvard Business Review Webinars and Director of Marketing and Communications for Harvard
Business Review Press. In her 20 years at HBR, Devoll has led the marketing strategy—events, media relations, social
media, and more—for HBR’s bestselling books, articles, and authors. She has partnered with many high-profile experts
on promoting their ideas to a broad audience of business professionals, including AG Lafley, former CEO of Procter &
Gamble; Reid Hoffman, Co-Founder and Executive Chairman of LinkedIn; Sallie Krawcheck, CEO and Co-Founder of
Ellevest; and Daniel Goleman, author of the New York Times bestseller, Emotional Intelligence.
Devoll also led the foundational team that launched HBR’s presence on social media platforms, notably Facebook,
Twitter, and LinkedIn. In her editorial role for Webinars, Devoll works to identify thought-leaders and content that
creates value for clients, HBR subscribers, and webinar participants.

Prior to her time at Harvard Business Review, Devoll was a Product Manager for MediaMap, Inc. (now Cision) where she
managed the research and development for Cision’s high-tech media product. Devoll graduated cum laude from Stonehill
College with a Bachelor of Arts in English and a minor in Mass Communications and Journalism.

The information contained in this summary reflects BullsEye Resources, Inc.’s subjective condensed summarization of the applicable conference session. There may be material errors,
omissions, or inaccuracies in the reporting of the substance of the session. In no way does BullsEye Resources or Harvard Business Review assume any responsibility for any information
provided or any decisions made based upon the information provided in this document.

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SPONSOR’S PERSPECTIVE

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